Norwegian sovereign fund will reduce investments in bonds of developing countries

Norwegian Sovereign Fund will cease to be the main investor in OFZ

The Norwegian sovereign fund, the largest in the world, is diminishing its presence in the markets of developing countries.
In the management of the Norwegians are assets worth more than $ 1 trillion. In late February 2019, it became known that the government issued a decree to reduce investments in bonds of domestic loans in developing countries. In particular, we are talking about 10 states, among which Russia. Until now, Norges Bank Investment Management was the main investor in federal loan bonds (OFZ) of the Russian Federation. Experts believe that after the release of the Norwegians, the yield of securities will increase slightly, and the ruble will weaken.

In general, Norges Bank Investment Management can still invest in developing countries. But with an important condition – the securities of these states should not occupy more than 5% of the entire portfolio. In general, the Norwegian sovereign fund has invested more than 28 billion dollars in emerging markets. The lion’s share of investment went to Mexico and South Korea.
In general, experts expected more radical decisions from the Norwegians. In particular, it was originally discussed exclusively investing in securities issued in dollars, euros and pounds sterling.

The Norwegian sovereign fund suffered due to the depreciation of the Czech koruna

Norges Bank Investment Management made decisions on portfolio diversification in 2017. The government allowed to invest in the shares of enterprises not 60, but 70% of all funds. Obviously, stocks are an asset, much more lucrative than bonds. In particular, dividends are paid on shares, which, in general, can make up a decent part of the fund’s income.
Where did the foundation decide to go first? Of the countries whose assets are most at risk. Norwegians believe that investing in some developing countries is inappropriate: the yield on government bonds is in great doubt. Indeed, in 2018, the Norwegian sovereign fund for the first time in 11 years reported a loss of $ 56.7 billion. The reason was that the Czech koruna was noticeably devalued because the fund did not have sufficient mobility to diversify risks. Where American hedge funds can play every day, shuffles assets, Norwegians need to go through a series of approvals. That is why only in 2019 that conceived in 2017 is realized.
Some Russian analysts associate the decision of the Norwegians also with the US sanctions against Russia. In particular – against oil projects located outside the state. There is some truth in this: Norway is the main player in the oil market, Brent hydrocarbons are mined in oil rigs in the northern seas.

 

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